EPAct 179D Experts

"The least expensive kilowatt, is the one not used."

- Jacob Goldman

The EPAct Tax Opportunity of Los Angeles Parking Garages

By population Los Angeles is America's second largest city. However,
as compared to the other top four population cities namely New York,
Chicago, and Houston, Los Angeles is a city of car owners that drive
everywhere and frequently park in parking garages both for work and
non work activities. Parking garage lighting retrofits provide one
of the best economic opportunities for energy cost savings and EPAct
tax savings.

Los Angeles Population Urban Geography Comparison

The four largest U.S city populations to geography comparison
illustrates why automobiles are the most common mode of
transportation in Los Angeles as presented below.

Los Angeles Leads in Combined Urban/Suburban Parking Garage
Density

Los Angles leads the world in parking garage density. In a detailed
abstract from the Journal of Urban Planning and Development entitled
Parking, People and Cities , Michael Manville and Donald devoted a
substantial portion of the large volume of Los Angeles region
parking garages, The attached chart presented in Manville and
Shoup’s article illustrates this point:

In the United States the automobile requirements consume close to
half of the land area in cities. In Los Angeles the percentage
approaches two thirds. Moreover, the LA suburbs are much denser than
typical U.S. cities. Mansville and Shoup describe the phenomenon,

“The density of LA’s suburbs is fully 74 percent of that in its
central city. In New York and San Francisco, density plummets
outside the central city. Suburban New York has only 12% of the
density of its central city, while suburban San Francisco has just
35%. Los Angeles is a dense city in a very dense region, while New
York and San Francisco are very dense cities in less dense regions.”

The Tax Opportunity

Pursuant to Section 179D of EPAct and its underlying ASHRAE
(American Society of Heating Refrigeration and Air Conditioning)
building energy code, commercial buildings are eligible for energy
efficiency tax deductions of up to $1.80 per square foot. If a
building’s energy reducing investment doesn’t qualify for the full
$1.80 per square foot deduction, then deductions are available for
any of the three major sub-systems, including:
1. Lighting.
2. HVAC (Heating, Ventilation and Air Conditioning).
3. The building envelope.

Each component can qualify for up to 60 cents per square foot in
EPAct tax deductions. The building envelope is anything on the
perimeter of the building that touches the outside world including
roof, walls, windows, doors, the foundation and related insulation
layers.

IRS Notice 2008-40 Sec. 6 specifically references parking garages as
an eligible building category for Section 179D tax deductions. Due
to the unique aspects of parking garages, these deductions are
usually limited to $0.60 per square foot for lighting. In order to
qualify for the tax deduction, the lighting system must exceed the
efficiency set by ASHRAE.

Los Angeles has a full range of parking garages eligible for both
the commercial and government designer parking garage EPAct tax
savings. The opportunities are as follows:

Under current law, EPAct parking garage deductions are available for
both new and existing building lighting projects completed between
January 1, 2006 and December 31, 2013.

Capturing Previously Missed Tax Deductions

In January of 2011 IRS issued Revenue Procedure 2011. This is a very
beneficial announcement allowing tax payers who previously missed
their EPAct tax deduction to pick up the missed deductions and
report it on a current tax return.

The Three Major Lighting Technologies

The three major parking garage lighting technologies currently used
to achieve energy cost reduction and obtain large EPAct tax
deductions are:
• Fluorescent
• LED
• Induction lighting

Each of the three major parking garage lighting technology
alternatives have strengths and weakness that need to be evaluated.
Items to consider include investment price point, utility rebates,
building environment, lighting performance, operating costs, lamp
life, warranties, dimming characteristics, and maintenance costs.

Fluorescent Lighting and EPAct 179D

To date, fluorescent lighting, utilizing T-8 and T-5 lamps, has been
the most common product selection for energy efficient lighting.
With fluorescent lighting conversions, density of fixture layout is
critical to minimizing energy use and maximizing EPAct tax
incentives. Without attention to design, we see some projects that
miss tax deductions or only achieve partial tax deduction.
Fluorescent installations generally have the lowest installed price
point of the three major lighting technologies.

LED Lighting and EPAct 179D

LED or Light Emitting Diode lighting is moving quickly into the
parking garage marketplace. There are many competing vendors and
garage owners need to research and compare product offerings. Due to
the low wattage level, most LED parking garage projects qualify for
the maximum EPAct tax deduction. However, some projects are right on
the edge of eligibility so it is important to have an
EPAct-knowledgeable reviewer make the calculation.

Induction Lighting and EPAct 179D

In an interesting market development, induction lighting — although
available in the U.S. for over ten years — is enjoying high growth
in the parking garage market albeit from a relatively small
installed base. Now that parking garage owners have two distinct
product alternatives in fluorescent and LED lighting, they seem to
be more open to compare and contrast a third lighting alternative.
Induction tends to have a price point in between fluorescent and LED
and has its own particular attributes warranting evaluation.
Induction lighting is actually fluorescent lighting without
electrodes and is sometimes called electrode-less discharge
lighting.

Utility Rebates

It is crucial to understand how different utility rebate processes
work with the different lighting technologies. Many utilities offer
two types of rebates: prescriptive and custom.

Prescriptive rebates are a fixed amount per product such as $30 per
fluorescent fixture. Prescriptive rebates are common with high
volume mature product categories because utilities are thoroughly
familiar with the product’s energy performance results. Accordingly
most utilities offer fluorescent rebates based on a prescribed
amount available from a prescribed table or listing.

Custom rebates are tailored or customized to the product’s expected
performance and are normally calculated based on the electricity
expected to be saved. Hence, custom rebates for electricity-based
products are sometimes called kW (kilowatt) rebates. Many utilities
are not yet familiar or supportive of LED and induction lighting
products, so the exclusive rebate opportunity may be a custom
rebate.

Since LED and induction lighting is low wattage lighting, a probing
into a custom rebate may lead to a dialogue resulting in a much
higher overall rebate than the typical prescriptive process.

Banned Lighting

Many parking garages still have mainstream prior generation energy
inefficient metal halide and T-12 lighting. As of January 1, 2009,
probe start metal halides are illegal to manufacture in their most
common wattage categories. T-12 magnetic ballasts are now illegal to
manufacture as of July 1, 2010. As replacement costs for these
banned items increases, parking garage owners will naturally
retrofit to one of the three efficient technologies.

Commercial Garages and EPAct 179D

There are a wide variety of commercial garages where either the
garage owner or a tenant/garage management firm can obtain the EPAct
tax deduction benefit depending on who paid for the energy efficient
lighting. Typical commercial garage owners include commercial city
garages, commercial airport garages, apartment buildings, office
buildings, department stores, hotels, and casinos.

Government-Owned Garages under EPAct 179D

With government-owned garages, the design team is entitled to the
EPAct tax deduction. For tax purposes, a designer can be an
architect, engineer, lighting designer, design and build contractor
or an ESCO (Energy Services Company). It is important to note that
by statute, the tax beneficiary is the designer and not the
government entity. The government owner reaps the larger economic
benefit, which is the permanent perpetual energy cost reduction. The
parking garage lighting designer or design team earns a onetime tax
incentive for designing an energy efficient facility. Some of the
largest government owned garage categories include municipal, state
universities, and airports.

Act Now

The economic payback is so compelling that parking garages
throughout the country are moving quickly to capture the combined
energy savings, utility rebates and the large EPAct tax savings
related to parking garage lighting retrofits. Large multi-site
garage owners that may be resource constrained for retrofitting all
garages at once should be planning to have lighting retrofits
completed on or before December 31, 2013. The overall economics are
too lucrative to justify delay, and financing is available that
actually further enhances the economic return.